HMRC is collecting more tax and using digital technology to cut costs and improve the tax system. But years of job cuts and re-organisations are taking their toll on the department’s performance. It’s time for an independent review of HMRC, writes Nick Huber.
HMRC regularly comes bottom of the league when government departments are surveyed for worker morale and job satisfaction. But if there was a prize for the department with the most transformation plans, restructuring, big IT projects and taskforces then HMRC would surely be a contender.
It has been a particularly busy and controversial year for HMRC: job cuts, the announcement that it will close most of its local tax offices, plans for each taxpayer to have their own digital tax account, new powers to take money owed from taxpayers’ bank accounts and a general anti abuse rule to help end extreme tax avoidance).
There are so many changes, targets and consultations, it’s hard to keep up. Are they helping HMRC to collect more tax, improve its service and give better value for money?
A report by the Public Accounts Committee published in November was highly critical about HMRC’s performance, saying it was unfit for purpose and failing taxpayers.
“We are deeply disappointed at the low number of prosecutions by HMRC for tax evasion,” said Meg Hillier MP, chair of the PAC. “The public purse is missing out and taxpayers expect and deserve better.”
HMRC said that the committee of MPs had overlooked the department’s “record results”, which include collecting a record £517bn in tax revenues and further reducing the UK's tax gap (the difference between what is due and what is collected) to ensure it remains “one of the lowest in the world”.
Of course, some tax experts reckon it’s one of the lowest in the world because HMRC’s estimation is way too low. Disagreement about such an important figure in tax makes it hard measure HMRC’s performance and probably increases cynicism about the department’s commitment to being more open.
A report by the National Audit Office (NAO) published in December had some good news for HMRC. The government auditor said HMRC met its targets to raise more tax revenue in the short-term, but noted an estimated £16bn is lost to tax fraud each year. The NAO said HMRC needs to improve the way it uses data and analysis to understand the effect of its anti-fraud strategy.
Personal tax accounts
One thing is clear though. With £1.3bn in its pocket from the November Spending Review to spend on digital tax accounts for each taxpayer, HMRC is relying heavily on tech to by-pass all those time-consuming and troublesome calls from taxpayers trying to find answers to their questions.
HMRC expects the number of calls to reduce from 38m in 2015-16 to 15m in 2019-20, as customers increasingly find all the information and services they need online, according to NAO.
This taxpayer DIY, plus powerful software to help detect tax dodgers, will, HMRC says, enable it to collect more tax at a lower cost with about 40% fewer workers than 10 years ago.
Simple, then? Not really. In its December report, the NAO concluded that the department’s ambitious digital plans have “significant delivery risks”.
“A great deal of HMRC’s energy and focus over the next five years will be to automate its systems and migrate more taxpayers into digital channels in order to increase its efficiency and effectiveness,” the NAO report said.
“Its strategy places considerable emphasis on doing more to help taxpayers get their tax right first time.”
In the UK, there are plenty of examples of large IT government projects definitely not getting it right first time – the biggest one being the National Health Service patient IT programme, the cost of which spiralled to nearly £10bn, according to an official estimate.
Some of HMRC’s new technology has worked fairly well, though, such as self assessment and, the department would argue, real-time information (RTI) for payroll tax. Although AccountingWEB continues to document duplicate records and reconciliation errors, a huge majority of employers are now send information about tax and national insurance they deduct from employees’ wages to the Revenue when they are made.
There is dissatisfaction with other HMRC online services that are supposed to save accountants’ time. In November, Tina Riches, national tax partner at Smith & Williamson, told International Adviser that some of HMRC’s online services aren’t easy to use. She complained, for example, that lengthy forms currently cannot be partially completed, saved and revisited if a piece of vital information is missing.
Rolling out digital tax accounts from early in 2016 will be tough but perhaps less tough than the ending the huge, 10-year Aspire IT outsourcing contract and re-gaining control over most of its back-office systems.
The outsourcing contract, run by a consortium headed by Capgemini, is due to end in 2017.
HMRC has been criticised for its management of the contract. According to the National Audit Office the contract's cost has more than doubled since 2004 and could reach £10bn by 2017.
HMRC has started to break the contract into smaller bits, some of which it will bring back in house, and some of which it will put out to external tender. HMRC has assigned three IT services to a new company limited by guarantee being set up as the first step in this transition.
The contract hasn’t gone smoothly but if efforts to replace it fail, the chaos it could cause to the tax system could make HMRC and taxpayers regret the decision to end the outsourcing.
2016 may see more strikes by HMRC workers if HMRC goes ahead to close HMRC plans to close 137 local offices over the next 12 years and reorganise its teams into 13 regional centres. It has closed 281 walk-in enquiry centres over the past 18 months.
A spokesman for the Public and Commercial Services union (PCS), which has about 60,000 members at HMRC, told Accounting WEB that it had “no faith” in HMRC’s ability to introduce personal digital tax accounts and that plans to close local offices could mean thousands more job losses as not all employers will be able to re-locate to a different city or be prepared to make a much longer commute into a new office.
The spokesman said that although HMRC had invested more in tax “compliance” work and extra staff for call centres, a lot of the staff were temporary.
According to the PCS, HMRC’s workforce has reduced from about 97,000 in 2005 to about 55,000 now.
A spokeswoman for HMRC responded: "We are not downsizing. We are modernising how we work and making savings in the process. This will help us clamp down on tax evasion by increasing our skills base and using the modern techniques we need to catch modern tax dodgers. The world has changed and so must we."
She also said HMRC was performing wel. Last year, HMRC collected and protected a record £26 bn in revenues from compliance activities, contributing towards the UK's highest ever tax take of £518bn.
Additional funding and new measures contained in the summer Budget and Autumn Statement will help HMRC to crack down further on “the hidden economy, get tougher on offshore evasion, and increase the number of prosecutions of wealthy tax evaders”, she said.
Will digital tax returns and Big-Data type analysis of tax evaders compensate for a decade of low staff morale and job cuts?
A growing number of senior accountants, academics and lawyers are sceptical and want a review of HMRC.
Nigel May, tax partner at MHA MacIntyre Hudson, told Accounting WEB in May: “If you take the PCS statements at face value, every HMRC worker brings revenue into the coffers why would the government not follow what has been said [by PCS and employ more tax inspectors]? Maybe there is a way to get HMRC working better. It’d be very nice to see an improvement in the experience of dealing with HMRC whether it’s more staff, better trained staff or more motivated staff.”